Chicago Still A Factory Town

December 29, 1985|By Ann Markusen, an economist and senior research associate at Northwestern University`s Center for Urban Affairs and Policy Research. She directed the research for Steel and Southeast Chicago, a study prepared for Mayor Washington`s Task Force on Steel.

In its provocative report, ``Make No Little Plans,`` the Commercial Club of Chicago assigns a minor role to manufacturing in the city`s future. Big plans, it counsels, should be drafted on the cornerstone of services, finance and high technology. This prescription assumes, mistakenly, that basic industry is of decreasing importance to Chicago`s economy. It also fails to gauge accurately the links between manufacturing and these newer, emerging sectors.

To begin with, manufacturing job loss and services job growth are discussed as if they are entirely different sets of activity. However, subtle changes in the organization of production have merely shifted jobs statistically from one category to the other.

For instance, in steel, a significant share of apparent job loss crops up in neighboring sectors. Blast furnace reclining is subcontracted to construction firms. Independent truckers haul steel that used to be delivered by company fleets. Machinery maintenance, moldmaking, lunchroom and janitorial services, even industrial engineering are subcontracted to firms in the transportation, service and retail sectors. Steel distribution has been spun off to wholesalers. These were manufacturing jobs five years ago; today they are recorded as service jobs.

The point is that these jobs are still dependent on the viability of the steel mills. A Merrill Lynch study recently attributed 50 percent of the recent drop in man-hours per ton of steel to subcontracting of this sort. If steel mills shut down, these jobs in related sectors go, too.

Indeed, service activity has traditionally been more of a complement to basic industry than a substitute for it. This is particularly true in producer services, which, along with health care, account for the lion`s share of recent service sector job growth. In 1977, steel mills in Chicago sold $7.9 billion worth of steel. They purchased $300 million in transportation services, $285 million in energy, $123 million in business services and $28 million in banking services, insurance and real estate, most of it locally.

Yet another round of service sector jobs is supported by the paychecks brought home by steelworkers, machinists, plant managers, shippers, accountants, market analysts and contractors working directly in producing activities. The vigor of Chicago`s health care sector, retail trade, housing industry and entertainment field are all dependent on these links.

The close ties between manufacturing and services are revealed in Chicago`s persistently poor performance in the latter category, compared with the country as a whole. While service jobs grew 21 percent nationally from 1979 to 1984, Illinois added only 14 percent. Similarly, the state`s job-growth rate in finance, insurance and real estate was only 50 percent of the nation`s. Why? Because Illinois` manufacturing job loss was almost three times that of the nation.

People forget that Silicon Valley, the envy of most American cities, is a manufacturing phenomenon. Indeed, with 40 percent of its employees in manufacturing, it is one of the most highly industrialized areas in the world. And its high-tech jobs are supporting a complementary boom in service activities.

Services can also be an independent source of growth. New York`s recent recovery is, in large part, the result of its growing international role as a financial services complex. Chicago`s downtown boom owes much to its emergence as a world-class commodities trading center. But the numbers show that this growth role is limited.

Despite a recorded manufacturing job loss in excess of 22 percent from 1979 through 1984, manufacturing remains a critical element of the Chicago economy. The highly interconnected metals, machinery and transportation equipment sectors still account for almost 300,000 jobs in Cook, Du Page and McHenry Counties. These jobs each support between 1.5 to 2 other local jobs. That means that 25 to 30 percent of all area employment is dependent on these heavy industries alone.

Add to that the relatively robust manufacturing sectors of food processing, pharmaceuticals, scientific and medical instruments and printing and you begin to see the range of diversity in Chicago industry. It`s from these existing specialties that Chicago`s high-tech future is apt to come. On the heavy industry side, a new generation of machine tools; higher quality steels; smaller, more flexible and more energy-efficient industrial and farm machinery; and more nutritious food products. On the light side, better scientific instruments, new medical devices and a new generation of smaller consumer appliances.

In a world where international trade is claiming a larger share of markets every day, cities that specialize are best poised for success, and playing to your strengths becomes even more critical. Making the world`s best producer and consumer durables has always been one of Chicago`s chief advantages. Thus, industrial renewal must be a key ingredient in the formula for Chicago`s economic future.